Xiaomi Inc. is the world’s 3^rd largest smartphone maker and is headquartered in Beijing, China. Xiaomi employs a very different strategy from other smartphone makers like Apple and Samsung. Xiaomi prices its smartphones at close to the marginal cost of production and makes a large portion of its profits via the sale of phone related, peripheral devices, smart home gadgets, apps, and online videos. While Xiaomi is technically not a monopoly, it does have market power and the ability to set its own prices.

This month, Xiaomi released in India the Xiaomi Lite 13 Lite (“13Lite”), the latest Android powered smartphone. The price of the 13Lite at launch in India was $300 (USD). Xiaomi has determined that demand in India for the 13Lite is:

q_India = 1,500 – 2P

where q_India is the number of 13Lite smartphones sold (in thousands) and P is the price of the 13Lite (in US dollars).

a) Answer the following questions with respect to Xiaomi’s sales and pricing at launch. Be sure to provide evidence for your answers.

1. What are sales in India at launch?
2. What is the own price elasticity for the 13Lite?

b) Answer the following questions with respect to Xiaomi’s sales and pricing at launch. Be sure to provide evidence for your answers and explain your reasoning for each part below.

1. What is the revenue maximizing price? How does the current price (i.e., launch price) compare to the revenue maximizing price?
2. Using the information that you have, is the launch price the profit maximizing price?
3. (How) should Xiaomi adjust the price of this phone to increase profits?

c) Earlier this year, Xiaomi launched the 13Lite in another country (i.e., not India and with a different demand curve than shown above). Initial sales were around 800 (in thousands) and the own price elasticity in this market is -0.75 at an initial price of $350. (Assume that the own price elasticity is equal to -0.75 for any price that you calculate below.)

However, to enter the market with a splash and sell more phone accessories and apps, Xiaomi has determined that target sales are 1,010 phones (in thousands).

1. What price does Xiaomi need to charge to reach this sales target?
2. How would this new price compare to the profit maximizing price for the smartphones? Explain, using elasticity related concepts.

Answer rating: 100% (QA)

a To answer the first part of the question we can use the demand function provided qIndia 1500 2P where qIndia represents the number of 13Lite smartph... View the full answer